More on Peak Oil

Course Review (or why Daniel Yergin needs to do his homework)

by Richard Heinberg

Energy Bulletin,

21 October, 2011

Recently I’ve been getting emails from folks who had previously read an article or two on Peak Oil and found the evidence convincing—but who have more recently encountered a piece or two by Daniel Yergin (or another writer following the same train of thought). Their new line of reasoning goes like this: There are immense quantities of low-grade fossil fuels in Earth’s crust. Until recently, these were inaccessible for practical reasons. But engineers are developing technologies to enable economic extraction. Just as “fracking” shale gas has been a “game changer” for the natural gas industry, new technologies for accessing tar sands, oil shale, and shale oil (those latter two are very different things, by the way) will change the oil game. There are centuries’ worth of these substances out there. Thus, in short, Peak Oil is (as the title of one recent article argued), “entirely nonsense.”

Now, every element of that argument has already been dealt with at length in the Energy Realist literature. But occasionally a review of previous course material is called for. So here we go. I’m going to assume knowledge on the reader’s part of a few basic concepts such as net energy, energy returned on energy invested (EROEI), and Liebig’s Law.

Let’s start with the “game changer” of natural gas hydrofracturing. Here we have complex, costly technology being applied to the production of a resource that is otherwise getting scarce (conventional natural gas production is in decline in the US, and soon to be so in most other regions). But today the US has plenty of gas and prices are low. Reserves in the Marcellus and other shale regions are high. Is this evidence that the “peak” thesis is wrong?

As we at Post Carbon Institute detailed in our recent report [Will Natural Gas Fuel America in the 21st Century?], the current situation of low gas prices and apparent abundance is temporary, resulting from very high rates of drilling in 2006-2007, when gas prices were soaring. Reserves have been overestimated (as is now acknowledged by USGS), and companies that specialize in fracking are subsisting on investment capital rather than production profits. As conventional gas production in North America declines more sharply in the years ahead, producers will be unable to maintain total gas production at current levels, and prices will rise. Fracking delays the peak, but not my much. There’s much more to the story, but that’s the quick and dirty overview.

But let’s step back and look at the situation in broader perspective. Industrial civilization is a system. As such, it has certain non-negotiable requirements (see Liebig’s Law). One of these requirements is for abundant, cheap, high-EROEI fuels. In a pinch, the system can use abundant, cheap, high-EROEI fuels to subsidize the production of low-EROEI fuels (shale gas, tar sands, shale oil) as substitutes. But as the high-EROEI fuels (conventional oil and gas) deplete, this becomes more problematic, because those high-grade fuels are still needed elsewhere in the system to directly maintain transport and agriculture, and to indirectly maintain finance, education, and all the rest. Further subsidizing of low-grade fuels would require starving the rest of the system.

It’s sometimes objected that, if the system desperately needs the fuel, and low-grade substitutes exist, system managers will do whatever is necessary to keep those fuels coming, even if Nature and poor people have to be sacrificed in the process. In that case industrial society would change—it would become leaner and meaner—but it would persist, and perhaps for a very long time, given the amounts of low-grade fuels available.

Occasionally the example of Nazi Germany is mentioned: During World War II, the Nazis ran out of petroleum but were able to make synthetic substitutes out of coal, a lower-grade fuel source. True. But they lost the war!—in no small part because their fuel system had become unworkably dysfunctional.

Remember: industrial civilization is a system. As such, it has a certain amount of adaptive flexibility, but it also has bottom-line needs; if those are not met, the system will fail. Pieces of the system may persist in other configurations, but if critical thresholds in necessary inputs are breached, the system no longer can function as a coherent entity.

The new technology required in order to produce low-grade fuels is complex and costly. This is true whether we’re talking about SAGD for tar sands, hydrofracking for shale oil and gas, or ultra-deepwater drilling for petroleum. In order to build and operate complex and costly technologies, society must maintain coherence and complexity (universities, factories, finance systems, and systems of transport). If non-energy-producing support system must be cannibalized (by directly or indirectly diverting the available flow of high-EROEI fuel to subsidize the burgeoning low-grade fuels industries), then we set in motion a process that results in the death of the system.

The advantage of high-EROEI fuels was that they yielded a surplus of energy that could fund the development of complex subsystems (including finance and education) to support the growth of the energy industries, which could continue to support the growth of the rest of the system. With low-EROEI fuels we see that self-catalyzing process run in reverse.

So how quickly does Peak Oil result in the death of the system? Can the system maintain itself for a few decades or a few centuries on ever-lower-grade fuels? The current ongoing crisis of world finance capital suggests that the time frame may be quite short. The financial subsystem is not just a proverbial canary in the coal mine—an otherwise functionless alarm mechanism; it is a vital organ required for the functioning of the whole. The end of economic growth (due indirectly to the decline in net energy available to society) is causing the financial system to shudder and shake; the result could well be a rapid collapse that would deny essential monetary support to other necessary subsystems (agriculture, transportation, manufacturing, education).

I’m not saying that civilization will utterly collapse tomorrow. There may be years of adaptive capacity left in the system. However, I do think it’s safe to conclude that efforts to build a massive, expensive technological infrastructure to extract and process low-grade fuels for decades to come will founder—sooner rather than later—for lack of systemic support.

So yes, Peak Oil—the peaking and decline of conventional oil and gas production—is real, it is happening, and it is a Big Deal.

There will be a test on this Friday. Class dismissed.